Thank you, Mary, for that kind introduction. And thank you all for your invitation and warm welcome. I’m pleased to join you at one of the most important conferences of the year in our field.

Before I begin, let me address what I know is on everyone’s mind -- the recent decline in the markets.

It’s not my business here to gaze into a crystal ball. To do so now, before this audience, would give a whole new meaning to the words "March madness."

My concern is how the markets have held up in terms of their functioning, integrity, and ability to handle substantial market volatility and trading volume. And from this systemic and regulatory perspective, as odd as it may sound, our report card is reassuringly solid.

For instance, when I compare what’s happened lately to our experience in 1987, I know that then, the system simply failed. Too many people tried to head out the doors at the same time. A lot of unnecessary damage was done.

We haven’t seen that this year. And if you had asked people a year ago how the market’s plumbing –- its clearing, settlement and other operating mechanisms -- would perform in the face of a two-thirds drop in the tech market, I doubt many would have believed the market as a system would hold up so well.

That is no call for relaxing our vigilance. It is confirmation that we were prudent in recent years to plow hundreds of millions of dollars into market capacity, technology, and integrity investments. And that the old proverb is right, that you repair the roof before it’s raining.

Now as you heard earlier, my background is not the law, but economics and finance. I’ve spent a lifetime striving to expand our understanding of how financial markets work, how their risks should be managed, and how their integrity and stability can best be strengthened and sustained.

But as much as I have valued the intellectual rigor of these pursuits, I have been even more grateful for my years of business experience and government service. For in these capacities, I have seen theory tested in the crucible of practice. And been reminded, by analogy, why Holmes was wise to say that "The life of the law has not been logic, it has been experience."

So while our professional backgrounds may differ, I suspect our perspectives and priorities are very much the same. The NASD’s mission is to achieve the most efficient, liquid, and fair securities markets in the world -- so that investors trust and use our markets. This fosters capital formation, creates jobs and keeps the dollar strong. It protects investors and strengthens public confidence. And it cannot be accomplished if the NASD neglects its core competence and central duty to be a tough and even-handed regulator.

Simply stated –- as my former colleagues might have put it back at the Harvard faculty lounge -– the NASD ain’t going away. We will remain the same dogged cop on the beat you have come to know, and I hope, respect.

But while we cannot and will not lower our standards, we are adopting a view of our mission that is both broader and more appropriate for the NASD as we complete the steps necessary to spin off Nasdaq and ensure our independence.

That means remembering our purpose has never been regulation for its own sake, but efficient self-regulation for the sake of market integrity and investor confidence.

It means reviewing our rules to ensure they yield the maximum benefit for the minimum burden.

It means undertaking new approaches to help our industry assume a larger share of the responsibility for routine self-monitoring.

And it means benefiting our members and building prosperity by offering our expertise and technology to new partners and customers -- thus subjecting ourselves to the same market discipline you do, every day.

Each of these points bear explanation. I’ll take them in turn, beginning with the sale of the Nasdaq Stock Market to private owners.

The second phase of the Nasdaq private placement closed in January. With the completion of this systematic process, the NASD will be able to focus on its historic mission, financially strengthened and properly independent.

We plan to sell off our remaining minority position in Nasdaq in an expeditious yet orderly fashion. And we have good reason to believe the broader market demand for Nasdaq shares will be strong. Subject to market conditions, we intend to reduce our ownership stake to zero in less than 18 months.

But the details of these transactions and timelines are less important than the overarching principle they serve.

The NASD is irreversibly committed to independence for the Nasdaq Stock market. As Nasdaq restructures into a for-profit exchange, our regulatory activities will benefit from complete independence of their market operations. For we must be –- and be seen as -– an evenhanded regulator of Nasdaq and of its potential competitors.

NASD Regulation has been moving towards independence since its creation as a separate subsidiary five years ago. I want to thank my predecessor, Frank Zarb, for his leadership and vision in pursuit of that goal. And we will not rest until there can be no doubt that as a matter both of ownership and operations, the NASD and Nasdaq are two separate and independent entities.

As we enter the post-Nasdaq phase of our history, I am determined that the NASD be above reproach not only for its toughness and evenhandedness, but for its efficiency.

With the assistance of many of you in this room, NASD Regulation has already begun the process of modernizing the rulebook with a major retooling of the Corporate Finance Rule, the Advertising Rules, the Free Riding and Withholding Interpretation, and the Three Quote Rule.

And we are now embarking on a fundamental, no-holds-barred assessment of all our rules -- existing and prospective -- to ensure that their costs and burdens do not overwhelm their benefits.

This will not be a cost-benefit analysis as such; for in any field, there are rules which are necessary, yet whose benefits cannot be readily quantified. But like business goodwill, such benefits are real and worth preserving.

Market integrity, investor confidence and freedom from government intervention are not free. But we can and will work hard to ensure that every existing rule we enforce and every new rule we write is as streamlined as possible, and imposes the least possible burden for the greatest possible benefit.

To help us in this effort, we have enlisted the assistance of an expert consultant with a remarkable background as a lawyer, doctor and regulatory policy liaison with the OMB during the Reagan Administration. Working closely with key NASDR personnel, he will help us review our existing rules; improve any we find obsolete; and design a template for a more streamlined and modern process for enacting new rules.

Let me be clear. I am not promising or predicting any particular result at the end of this effort. We may find virtually all of our rules justified. We may find several others in need of serious retooling. I am not going to prejudge this effort or preordain its conclusion. That’s part of what it means to be writing on a clean slate.

But I will say this. The process itself will be healthy. For you, it will result in rules that are better justified and better crafted. It will increase industry involvement and decrease needless burdens. And for us as regulators, it will permanently influence our mindset and methods. To me, that sounds like a win-win proposition.

Another such proposition is for us to use new technology and techniques to make routine self-regulation less intrusive, more efficient and more effective. We will be guided by two principles: alleviating the burden of regulation on our members; and honing our ability to regulate from a risk-based perspective.

For example, we know that for the smaller firms that make up the majority of our members, field examinations can be truly distracting. So we are developing a system called INSITE, which will let us draw on extensive regulatory databases to help focus our resources and examiners on the riskiest firms. The frequency and focus of our examinations should be guided by compliance risk, not the calendar.

Another extraordinary technology, the Advanced Detection System, uses sophisticated data mining tools to identify suspicious sequences of trading or quoting activity that can signal a potential violation. We use this to monitor and regulate the Nasdaq Stock Market, and plan to use it to monitor additional market activities.

We are even looking at tools that may ultimately be of interest to other markets or members to deploy within their own firms. One such technology will provide real-time monitoring to alert exchange operators or traders that they have just executed a problematic trade – in time for them to take immediate corrective action.

But make no mistake. No matter what technology we build, its acquisition by our members will never be a "Get Out of Jail Free" card. The NASD cannot and will not abdicate its responsibility to be the industry’s final arbiter of conduct in the markets and firms that we regulate.

That is because effective compliance is not simply a matter of obtaining shiny new tools. It’s a matter of USING whatever means are at your disposal to ensure that you abide by the rules.

Having said that, we are not here to play "Gotcha." We believe the vast majority of our members realize that investor confidence is a fragile and priceless asset. They know that U.S. equities markets have attracted vast sums of global capital over the past decade in significant part because they are the most transparent, fair, and best-regulated in the world. So they know that preserving this reputation for fairness and integrity is not just the right thing to do, it is the smart thing to do.

That being the case, there is good reason to offer our members the best compliance technology, so long as appropriate standards are maintained and safeguards respected. In fact, this may be the most efficient way to help our members catch more of their own mistakes in the first instance. So that they can get back to running a business, by the rules. And we can focus on getting the few truly bad actors in the industry either to respect the rules or get out of the business.

This brings me to the last new direction for the NASD that I want to share with you this morning. It may be our most ambitious initiative, and its success is anything but assured. But it is the next logical step in our evolution. And it is the right step to try, because the benefits for our members and the public could be substantial indeed.

What I am talking about is our effort to engage in new business initiatives that leverage the NASD's unique skills, technology and brand name as the leading private supplier of market integrity services in the world.

After all, we are the largest and most respected self-regulatory organization anywhere, with more than six decades of hard-won experience. For many of the new exchanges that will be created in the years to come, it will not be cost-effective to self-regulate from scratch. And overseas, far-sighted business and government leaders are realizing that they must explore and emulate different approaches if they want their markets to operate more like Wall Street and less like Las Vegas.

In almost any situation, the NASD can help -- by providing market integrity services that run the gamut from registration, licensing and training; to market surveillance, investigation and dispute resolution.

If the NASD succeeds in these efforts, we will earn an acceptable rate of return, which will let us hold down the cost of our services to our members. For that reason alone, you should wish us luck as we test these new waters.

Our new business efforts also will improve our game in a number of ways. We clearly will learn a lot from competing for and taking on these new assignments. Our newly-gained experience will help us do a better job for NASD members and Nasdaq. And let me assure you, our efforts to market our services will not distract us from our primary responsibility: to regulate our members effectively, efficiently and evenhandedly.

Moreover, competing for and keeping new clients will hold our feet to the fire. To win and keep new customers, who would voluntarily choose our services, we have to do a good job. Our members face this kind of market discipline all the time. If we believe in competition –- and we do -– then we must also believe that the NASD will benefit from this same market discipline.

Finally, there is a broader benefit at stake here. Our economy and our investors are more likely to prosper if equity markets are better and more uniformly regulated here and throughout the world. And to the extent the NASD’s involvement in additional markets can raise standards and increase regulatory consistency, everyone will benefit -- including the NASD and its members.

I close by telling you something that I have to tell myself at least once every day.

At this pivotal time in our history, the NASD’s evolution cannot be forced to happen quickly or easily or without false starts. Change is always harder than inertia -- just as memory comes more easily than imagination.

But we live in an era when the markets do not tolerate standing still. And we would not want to stand still even if we could.

For that is not how the NASD became the world’s leading self-regulatory organization.

It is not how the U.S. securities industry became the envy of the world.

And it is not how we will work with you, through these times of turbulence and testing, so that the markets keep functioning, the clouds are permitted to part, and our industry’s finest days are yet to come.